Chattanooga bankers on Wednesday generally welcomed the idea of raising FDIC insurance from its current $100,000 limit as a way to reassure anxious depositors amid the tumult on Wall Street over the past couple of weeks.

But local bankers said the change won’t affect how they loan money or do much to improve the lagging real estate market.

“We think this will be a good thing to calm the markets and reassure a lot of people who have been calling us over the past few months,” said Keith Sanford, senior vice president at First Tennessee Bank in Chattanooga. “But liquidity has not been a problem in Chattanooga, and we’re continuing to see good loan demand and continue to make loans every day.”

Bank deposits will be insured up to $250,000 under the Senate-approved bailout plan, a move designed to ease consumer fears and help banks maintain some of their small business accounts.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., asked Congress Wednesday to temporarily raise the insurance limit after the FDIC assisted in the past week with the takeover of two of the nation’s biggest banks — Washington Mutual and Wachovia.

“Unfortunately, there is an increasing crisis of confidence that is feeding unnecessary fear in the marketplace,” Ms. Bair said in a statement.

The FDIC already insures Individual Retirement Account deposits up to $250,000 and depositors also can set up revocable trusts, known as payable-on-death accounts, that are insured for up to $500,000.

“There have been a lot of questions and conversations from some of our clients, but fortunately once we answer their questions, most people have felt very comfortable and are being prudent about their money,” said Mike Butler, city president for SunTrust Bank in Chattanooga. “And contrary to some reports elsewhere, we are very actively engaged in lending money and are anxious to do so.”

Several local banks also participate in a network of banks included in the Certificate of Deposit Account Registry Service (CDARS), which allows depositors to enjoy full FDIC insurance on deposits of up to $50 million.

Nonetheless, Craig Holley, president of CapitalMark bank in Chattanooga, which participates in the CDARS program, said the higher insurance limit from the FDIC still “should restore confidence among most consumers.

“The $100,000 limit is low when you consider how many people have recently shifted their money out of the market into bank deposits,” he said.

C. Amy Smith, president of Citizens Tri-County Bank in Dunlap, Tenn., said the higher insurance limits and other changes in the Senate bill should help improve consumer sentiment and lessen monetary fears.

“People are worried about their money and I think this will increase the confidence of the customers that have excess deposits, even though there are now multiple ways to structure your deposits to make sure they are totally safe,” she said.

But Ms. Smith said the higher FDIC limits and proposed Treasury bailout of troubled mortgage-backed securities won’t change local banking operations.

“Our lending activity continues and we really haven’t seen the need to change our operation,” she said.

Dr. Bento Lobo, a UC Foundation associate professor of finance at the University of Tennessee at Chattanooga, agreed that the higher FDIC insurance limit “is not a solution for the credit problem.”

“It is about trying to keep Main Street from running to the banks and pulling deposits out,” he said. “This problem is a problem of crisis of confidence and for that this measure should have a positive impact.”

The FDIC, which insures deposits of almost 8,500 banks and savings associations, now has about $45 billion in its insurance fund and will propose raising premiums in the upcoming weeks to ensure that the fund remains strong, FDIC spokesman David Barr said.

The amount of uninsured deposits varies in each bank failure. When Silver State Bank in Nevada failed last month, only about $20 million of $1.7 billion was in deposits greater than the account limits and thus was uninsured, he said. When the giant IndyMac Bank of California failed in July, about $540 million out of $19 billion in deposits were uninsured, he said.

“No depositor has ever lost a penny of insured deposits and never will,” Mr. Barr said.

Comments